MATH4 Stochastic Analysis

Stochastic Analysis
This course will begin with introduction to basic concepts involved in the development of stochastic
integration: filtration and stopping times, martingales, local martingales, Brownian motion. The
theory of martingales will cover such notions as Doob’s optional stopping theorem and Doob-Meyer
decomposition theorem. The concepts of stochastic integral with respect to Brownian motion and
with respect to a local martingale, will then be introduced and developed. This will lead to the
derivation of Ito’s formula (an analog of the Fundamental Theorem of Calculus in Stochastic Anal-
ysis). The course will conclude with Stochastic Differential equations.

Suggested number of lectures and tutorials: 30 lectures and 6 tutorials (=36 hours)

Assessment: Exam 75%, Homework 25%

Learning outcomes: On completion of this module students should be able to:

• be familiar with basic stochastic models

• understand the basic theory of Ito’s calculus

• be able to apply Ito’s calculus in simple situations